Political tensions between the Russian and Ukrainian governments have the potential to disrupt trade.  Both countries are noted as suppliers of wheat, while Ukraine also markets growing amounts of corn and oilseeds.  Russia is the second largest international buyer of red meat and poultry meat.

Wheat appears to be the most immediate concern.  Russia with production of 52.1 million metric tons (MMT) in 2013 was the world’s fifth largest wheat producer at 7.3 percent of world production, just behind the number four producer, the U.S., at 58.0 MMT according to estimates by the Foreign Agricultural Service (FAS) of USDA.  Ukraine at 22.3 MMT was the ninth largest with 3.1 percent of the world crop.  Kazakhstan, a member of a customs union with Russia and also an exporter out of the Black Sea, is the twelfth largest producer at 13.9 MMT, 2.0 percent of the global crop.  The three countries together produced 12.4 percent of the world wheat crop in 2013.

Global wheat trade is expected to total 156.8 MMT in the 2013/14 marketing year, 22.0 percent of production.  Russia will export 17.5 MMT, 11.2 percent of world trade, and Ukraine will account for another 9.5 MMT, 6.1 percent of trade.  Kazakhstan is expected to export 7.5 MMT, 4.8 percent of trade.   The three country total wheat exports are 34.5 MMT, 22.1 percent of trade.

Other major wheat exporters could fill some of the trade gap depending on the type and quality of wheat traded.  One measure of available additional export supplies is to compare the expected end of the current marketing year stocks to the lowest carryover supplies for the previous four marketing years.  Australia could export an additional 1.2 MMT this marketing year.  Canada would have another 5.0 MMT to export, but is already struggling to ship a recent year high of 22.0 MMT.  The EU has 0.7 MMT in exportable supplies, but also has a recent year high in shipments.  India has an extra 3.4 MMT in exportable supplies using this calculation, but extra exports would be a political decision, not a market driven one.  The U.S. carryover stocks are expected to be the lowest for the last four years, but earlier year carryovers suggest that a tight world market could draw another 1-2 MMT from the U.S. carryover.

World markets could fairly easily cover a 10 percent shortfall in wheat exports from Russia, Ukraine and Kazakhstan, 3.5 MT, with minimal price increases based on expected exports for the 2013-14 marketing year.  Amounts beyond that would require price rationing.  About 133 MMT of wheat per year is used for livestock and feeding was high in recent years because corn supplies where short.  The large 2013 U.S. corn crop will allow some better quality feed wheat to shift to food uses.

According to the U.S. Agricultural Attaché in Moscow, during July 2013 through February 2014 Russia exported 14.2 MMT of wheat and flour of the 17.5 MMT expected to b exported by June 30, 2014.  The two major markets were Egypt at 2.6 MMT and Turkey at 2.4 MMT, followed by Yemen at 0.8 MMT, Iran 0.7 MMT, and Azerbaijan at 0.5 MMT.  The attaché in Kiev reported in November the major buyers of Ukrainian wheat are South Asian countries like Bangladesh, Thailand, Japan, and Indonesia.   By early January, Ukraine had exported 6.8 MMT of wheat.   The attaché in Kazakhstan reports that because of the high costs of transportation most of its exports will go to nearby regional buyers, including Russia and China.

Ukraine has moved into third place this year in corn export at 19.0 MMT, just behind second place Brazil at 21.0 MMT.  The U.S. is number one at 45.0 MMT this year, after a dismal 2012 drought reduced exports to 18.3 MMT.  Russia is a minor exporter at 3.2 MMT.  The U.S. could easily fill half of Ukraine’s corn exports, but Brazil would have to consistently raise larger crops to help fill the other half.   Ukraine has an agreement to supply 2.0 MMT this year to China as part of a multi-year agreement.  Most of the major corn buyers experimented with Ukraine corn when the U.S. 2012 crop was small.  A major disruption of corn exports by Ukraine would leave Argentina and Brazil as the only major alternatives to the U.S.

Russia and Ukraine are not major overall oilseed producers or exporters, but do play important roles in sunflower seed production and exports.  With 4.1 MMT of major protein meal exports this year, Ukraine accounts for 5.0 percent of global supplies.  Ukraine also will export 3.9 MMT of major vegetable oils, 5.7 percent of global exports.  Russia will export 2.0 MMT of vegetable oils, 2.9 percent of world trade.

Russia had 10.6 MMT of sunflowerseed production in 2013, 24.2 percent of global production, and Ukraine had another 12.5 MMT, 28.5 percent.  Most of their exports were as meal and oil, with Ukraine exporting 4.1 MMT of meal, 65.1 percent of global meal exports and Russia 1.5 MMT, 23.8 percent of the world total.  For sunflower oil, Ukraine is expected to export 3.8 MMT, 55.1 percent of the world total, while Russia will export 1.6 MMT, 21.7 percent of global exports.  While the overall oilseeds market will see little impact from the Black Sea uncertainties, the sunflower products markets will be on edge as events unfold.

Meat trade may be impacted to a greater degree because of the need for a reliable cold chain.  Ukraine does not export or import significant amounts of beef.  Some pork is exported to Russia, but with disagreements on sanitary issues.  Some pork is sent to other countries in the region and may face logistical issues.  Pork is also imported, with Brazil the largest supplier.  The U.S. has a minor market share.

Meat is much more critical for Russia.  According to FAS estimates, Russia in 2014 will be the number one beef importer at 1.0 MMT, the number two pork importer at 0.9 MMT and the number six young chicken meat importer at 0.5 MMT.  All suppliers have had sanitary issues with Russia that have curtailed or totally halted trade in recent years.  U.S. pork and beef access has been denied since February 2013 over the issue of using the feed additive ractopamine.  Pork trade is being restarted now.

Disruptions to trade could take many forms from higher insurance rates for goods traveling in unstable areas, to costs for reconfiguring supply chains to avoid bottlenecks, to government decisions to restrict trade to apply political pressure.  In all of these situations, open markets will be critical to send economic signals to all sides to make the needed adjustments. 

Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade &Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade on Twitter |Truth About Trade & Technology on Facebook.